Question 19

It makes the borrower personally obligated to pay the debt.

A promissory note or bond serves to create a personal obligation for the borrower to repay the borrowed amount, establishing a legally enforceable duty to fulfill the terms of the debt.

A) It furnishes a complete legal description of the property.

While legal descriptions are important in real estate transactions, a promissory note does not provide this information. Instead, it focuses on the borrower's commitment to repay the loan, which is separate from the property description.

B) It makes the borrower personally obligated to pay the debt.

This option is correct because the promissory note explicitly states the borrower's promise to repay the loan amount, thereby creating a personal obligation. This is a fundamental aspect of how promissory notes function in conjunction with mortgages.

C) It provides the elements necessary to make the mortgage valid.

A promissory note does not itself validate a mortgage; rather, it is the mortgage document that outlines the terms of the loan secured by the property. The validity of a mortgage relies on proper execution and compliance with state laws, not directly on the promissory note.

D) In case of default, it limits the lender's rights to interest only.

This statement is incorrect as a promissory note does not limit the lender's rights in such a manner. In the event of default, lenders typically have the right to pursue various remedies, which may include foreclosure on the property, not just limiting rights to interest.

Conclusion

The primary function of a promissory note or bond in relation to a mortgage is to establish the borrower's personal obligation to repay the debt, which is essential for enforcing repayment. Other options, while related to real estate transactions, do not accurately capture the role of a promissory note and therefore do not serve as correct answers.